Bringing finality to a lawsuit that has lasted over 10 years and some clarification to a damages question that has remained unsettled under ERISA, the Sixth Circuit issued its en banc decision in Rochow v. Life Insurance Company of North America. In its holding, a majority of the Court concluded that an ERISA beneficiary may not pursue a claim against an ERISA fiduciary for disgorgement of profits based on an alleged breach of fiduciary duty where the beneficiary has been made whole by an award of the benefits to which he is entitled. However, enough uncertainty exists among the circuits on this issue that pursuit of certiorari to the Supreme Court can be expected.
In 2004, Todd Rochow brought an ERISA action against Life Insurance Company of North America ("LINA") for the wrongful denial of disability benefits. Rochow asserted two separate claims: one for wrongful denial of benefits under §502(a)(1)(B) and one for breach of fiduciary duty under §501(a)(3). As part of his breach of fiduciary duty claim, Rochow alleged he was entitled to a disgorgement of the profits LINA enjoyed as a result of wrongfully denying, and thus withholding, his benefits. Eventually, the district court found that LINA's denial of benefits was arbitrary and capricious and that Rochow was wrongfully denied his disability benefits. The Sixth Circuit affirmed the district court decision.
Following remand, Rochow pursued his disgorgement claim, claiming that he was entitled to recover LINA's profits because of LINA's breach of fiduciary duty. Rochow argued that this claim, and the relief, sought, was separate and distinct from the award for benefits. The district court agreed with Rochow and awarded him $3.8 million based on his expert's opinion about the amount LINA likely earned by investing the amounts wrongfully withheld. The original appellate panel of the Sixth Circuit affirmed the award.
After granting an en banc rehearing, the majority of a 9-7 divided court ruled otherwise. The Court premised its decision on the fundamental notion that "ERISA remedies are concerned with the adequacy of relief to redress the claimant's injury, not the nature of the defendant's wrongdoing." As such, the Court's primary concern was whether Rochow could be, and was, made whole by the award of benefits without having to pursue an additional equitable remedy such as disgorgement of profits. While recognizing there may be situations where an equitable remedy like disgorgement is appropriate to make a beneficiary whole, the Court concluded that the benefits award did indeed make Rochow whole in this case. As such, the disgorgement claim could not stand.
In its decision, the Court also addressed other factors the Court historically has deemed important in the ERISA context. First, the Court applied existing precedent and rejected Rochow's claim that his breach of fiduciary duty claim presented a distinct or different claim with a different type of injury. Since the claim was simply a "re-packaged" benefits claim, it could not be separately pursued. Second, the Court stressed its concern that such a "disgorgement" theory, if accepted in Rochow's case, could essentially be pursued in any wrongful denial of benefits case, thereby creating a wide expanse for the recovery of consequential damages in an ERISA action. Such a result is contrary to the limited nature of damages recoverable under ERISA as dictated by long-existing Supreme Court precedent.
The majority opinion was met with a spirited dissent that focused on the egregious nature of LINA's conduct during the disability determination and other precedent which recognizes the need for adequate equitable relief in the context of ERISA. The dissent vigorously disputed the majority's premise that Rochow did not experience a separate, distinct injury because of the breach of fiduciary duty. Moreover, citing numerous decisions awarding prejudgment interest and disgorgement of profits for the wrongful withholding of benefits, the dissent contended that ERISA jurisprudence in fact allows the kind of equitable relief sought by Rochow since ERISA fiduciaries are prohibited from enjoying ill-gotten gains. For more information, please contact a member of the Frantz Ward ERISA Counseling, Arbitration and Litigation Group.